DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY,LUCKNOW
2018-2019

FINAL DRAFT
ECONOMICS

“Impact of increase in MSP and its analysis”

Submitted by:- Submitted to:-

Adhipatya Singh Dr. Mitali Tiwari
B.A.L.L.B. (Hons.) 1st semester Economics
Professor
Enrollment No.- 180101007

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 TABLE OF CONTENTS

DECLARATION…………………………………………………………………………. 3

ACKNOWLEDGEMENT…………………………………………………………………. 4

PREFACE………………………………………………………………………………….. 5

LITERATURE REVIEW…………………………………………………………………..6

INTRODUCTION AND PLAN OF STUDY………………………………………………8

1. What is MSP?

2. History of MSP system in INDIA

3. Determination of MSP

INCREASE IN THE MSP OF RABI CROPS …………………………………………………………………….12

INCREASE IN THE MSP OF KHARIF CROPS ……………………………………….13

IMPACT ON GDP……………………………………………………………………….15

IMPACT ON VARIOUS INDUSTRIAL SECTORS…………………………………...18

PROBLEM IN THE CURRENT SYSTEM……………………………………………..19

FARMERS FRIENDLY INITIATIVES AND POSITIVES OF INCREASE: THE

GOVERNMENT’S CASE………………………………………………………………22

SUGGESTIONS…………………………………………………………………………24

CONCLUSION………………………………………………………………………….25

REFERENCES………………………………………………………………………….25

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 DECLARATION

I hereby declare that the project work entitled “Impact of increase in MSP and its analysis”

submitted to the Dr. Ram Manohar Lohiya National Law University, Lucknow is a record of

an original work done by me under the guidance of Dr. Mitali Tiwari, Assistant Professor

(Economics), Dr. Ram Manohar Lohiya National Law University and this project work is

submitted in the partial fulfillment of the requirements for the award of the degree of B.A.

LLB. (hons). The results embodied in this thesis have not been submitted to any other

University or Institute for the award of any degree or diploma.

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 ACKNOWLEDGEMENT

I express my gratitude and deep regards to my teacher for the subject Dr. Mitali Tiwari, for

giving me such a challenging topic and also for his exemplary guidance, monitoring and

constant encouragement throughout the course of this thesis.

I would also like to thank the librarians of Dr. Madhu Limaye Library who extended their

assistance to me by helping me out consult the relevant books and provided me with research

material and good books to work upon and the distinguished authors, jurists and journals for

providing in the public domain such invaluable information. I also thank all of my friends and

seniors who aided me along the way.

Lastly, I thank almighty, my family and friends for their constant encouragement without which

this assignment would not have been possible.

I know that despite my best efforts some discrepancies might have crept in which I believe my

humble Professor would forgive.

Thanking You All.

ADHIPATYA SINGH

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 PREFACE

The basic objective of this study is to compile data and critically analyze the impact of

increase in MSP and the different steps taken by the government to double the farmers

income by 2022, the paper also analysis its effects on the different sectors of industries

discussing the benefits and shortcomings.

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LITERATURE REVIEW

1- Jha and Srinivasan, (2000) suggested that minimising government intervention in

internal and external trade in agricultural commodities and maintaining its role of

price stabilisation can yield positive welfare benefi ts in the aggregate. If agricultural

commodity markets are spatially integrated, then producers and consumers will

realise the gains from liberalisation: the correct price signals will be transmitted

through the marketing channels, farmers will be able to specialise according to long-

term comparative advantage and the gains from trade will be realised. Spatial market

integration refers to a situation in which the prices of a commodity in spatially

separated markets move together and price signals and information are transmitted

smoothly.

2- Vasant P. Gandhi (2008) analysis that there has been a sharp rise in the prices of

wheat and rice in India and the world, and in this scenario, managing food demand-

supply and prices has become a major concern in India. Wheat and rice marketing in

India takes place through a combination of public and private systems and there are

significant imperfections. Poor efficiency in marketing has serious consequences for

producers, and consumers, as well as the government and the economy. The lack of

necessary and reliable market information with various participants is a major cause

of the problem. The paper focuses on wheat and is based on a survey carried out in

seven states covering the entire marketing chain from farmers to consumers, including

traders, processors and retailers. It studies the existing marketing relationships and

seeks to identify the key decision-making and information needs of the players in the

market. Based on the findings, it suggests a decision-oriented market information

system for wheat. The information system enabled by computers and internet will

source market information extensively from rural, and international sources, process

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 it, and make it available to all the players. If implemented well, it will lead to greatly

improved and faster decisions on managing the supply, demand and prices, reduce

demand-supply mismatches, and help improve the marketing efficiency of the entire

operation.

3- Acharya (2007) observed that the official procurement operations are carried out

through regulated markets set up under APMR Act. A network of regulated markets

was created to promote organized marketing of agriculture produce. Except Kerala

and Manipur, all the other states had enacted State level APMR Acts. In 2005, there

were about 7,557 regulated markets spread across various states in India. The

geographical distribution of markets was skewed towards large states: larger the size

of area, more the number of markets. States like Andhra Pradesh, Bihar, Maharashtra,

Madhya Pradesh, Uttar Pradesh and West Bengal had share of more than 50 per cent

of total Chapter-II: Review of Literature 53 number of markets. The regulated

markets handled about 20 per cent of total marketed surplus.

4- World Bank (2005) analysis the direct benefits of MSPs accrued to a few states where

procurements were largest. Wheat procurement is concentrated in three states: Punjab,

Haryana and Western Uttar Pradesh (accounting for 95 per cent of total wheat

procurement), and of rice in in five states: Punjab, Andhra Pradesh, Haryana, Uttar

Pradesh and Tamil Nadu ( accounting for 85-90 per cent of total procurement). The

total fiscal transfers to Punjab in 2001-2 amounted to Rs 19.8 billion, to Haryana Rs

9.4 billion and to Andhra Pradesh Rs 4.9 billion.

5- Singh, Rangi and Kalra (2004) concluded that productivity of wheat in Punjab

increased by more than 5 times in five decades (1950 to 2000), area by three times

and production by more than 15 times. The increase in MSP during a period of more

than two decades, 1977-78 to 2000, was more than five times. The minimum support

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 price policy played a crucial role in bringing India out from deficit to surplus position

in food grains. However, Chapter-II: Review of Literature 52 the experience suggests

that price intervention distorted output crop-mix. During the decade, area under wheat

had increased by 0.53 million ha. in Haryana, Punjab and Uttar Pradesh. The area

under paddy in Punjab increased from 2 million to 2.6 million hectares, presumably in

response to high procurement price.

6- Another study by Karwasra, Kundu and Jain (2003) observed the impact of domestic

price policy on the production of rice and wheat. The study supported the fact that the

MSP for wheat and rice, which have been maintained reasonably high, has helped the

farmers to increase their production.

7- Landes and Gulati (2003), analysis two important policy changes occurred during

1990s affected incentive structure of the agriculture sector. These included domestic

economic reforms and WTO Agreement on Agriculture. Though measures affecting

agriculture sector were not included in economic reforms, but reduced levels of

industrial protection have improved the incentives in agriculture. Further, raising per

capita income has resulted in diversification of food consumption pattern.

Introduction and Plan of study –

What is MSP?
Minimum Support Price (MSP) is a form of market intervention by the Government of India

to insure agricultural producers against any sharp fall in farm prices. The minimum support

prices are announced by the Government of India at the beginning of the sowing season for

certain crops on the basis of the recommendations of the Commission for Agricultural Costs

and Prices (CACP). MSP is price fixed by Government of India to protect the producer -

farmers - against excessive fall in price during bumper production years. The minimum

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 support prices are a guarantee price for their produce from the Government. The major

objectives are to support the farmers from distress sales and to procure food grains for public

distribution. In case the market price for the commodity falls below the announced minimum

price due to bumper production and glut in the market, government agencies purchase the

entire quantity offered by the farmers at the announced minimum price.

History of MSP system in INDIA

The Price Support Policy of the Government is directed at providing insurance to agricultural

producers against any sharp fall in farm prices. The minimum guaranteed prices are fixed to

set a floor below which market prices cannot fall. Till the mid 1970s, Government announced

two types of administered prices:

 Minimum Support Prices (MSP)

 Procurement Prices.

The MSPs served as the floor prices and were fixed by the Government in the nature of a

long-term guarantee for investment decisions of producers, with the assurance that prices of

their commodities would not be allowed to fall below the level fixed by the Government,

even in the case of a bumper crop. Procurement prices were the prices of kharif and rabi

cereals at which the grain was to be domestically procured by public agencies (like the FCI)

for release through PDS. It was announced soon after harvest began. Normally procurement

price was lower than the open market price and higher than the MSP. This policy of two

official prices being announced continued with some variation upto 1973-74, in the case of

paddy. In the case of wheat it was discontinued in 1969 and then revived in 1974-75 for one

year only. Since there were too many demands for stepping up the MSP, in 1975-76, the

present system was evolved in which only one set of prices was announced for paddy (and

other kharif crops) and wheat being procured for buffer stock operations.

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 Determination of MSP

In formulating the recommendations in respect of the level of minimum support prices and

other non-price measures, the Commission takes into account, apart from a comprehensive

view of the entire structure of the economy of a particular commodity or group of

commodities, the following factors:

 Cost of production

 Changes in input prices

 Input-output price parity

 Trends in market prices

 Demand and supply

 Inter-crop price parity

 Effect on industrial cost structure

 Effect on cost of living

 Effect on general price level

 International price situation

 Parity between prices paid and prices received by the farmers

 Effect on issue prices and implications for subsidy

The Commission makes use of both micro-level data and aggregates at the level of district,

state and the country. The information/data used by the Commission, inter-alia include the

following:1

1
Farmer Portal

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 Cost of cultivation per hectare and structure of costs in various regions of the country and

changes there in;

 Cost of production per quintal in various regions of the country and changes therein;

 Prices of various inputs and changes therein;

 Market prices of products and changes therein;

 Prices of commodities sold by the farmers and of those purchased by them and changes

therein;

 Supply related information - area, yield and production, imports, exports and domestic

availability and stocks with the Government/public agencies or industry;

 Demand related information - total and per capita consumption, trends and capacity of the

processing industry;

 Prices in the international market and changes therein, demand and supply situation in the

world market;

 Prices of the derivatives of the farm products such as sugar, jaggery, jute goods, edible/non-

edible oils and cotton yarn and changes therein;

 Cost of processing of agricultural products and changes therein;

 Cost of marketing - storage, transportation, processing, marketing services, taxes/fees and

margins retained by market functionaries; and

 Macro-economic variables such as general level of prices, consumer price indices and those

reflecting monetary and fiscal factors.

Crops Covered

Government announces minimum support prices (MSPs) for 22 mandated crops and fair and

remunerative price (FRP) for sugarcane. The mandated crops are 14 crops of the kharif

season, 6 rabi crops and two other commercial crops. In addition, the MSPs of toria and de-

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 husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra,

respectively. The list of crops are as follows2.

 Cereals (7) - paddy, wheat, barley, jowar, bajra, maize and ragi.

 Pulses (5) - gram, arhar/tur, moong, urad and lentil.

 Oilseeds (8) - groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum,

safflower seed and nigerseed.

 Raw cotton.

 Raw jute.

 Copra.

 De-husked coconut.

 Sugarcane.

 Virginia flu cured (VFC) tobacco.

Increase in the MSP of Rabi crops

Giving a boost to farmers’ income, the Cabinet Committee on Economic Affairs chaired by

the Prime Minister Shri Narendra Modi has approved the increase in the Minimum Support

Prices (MSPs) for all Rabi crops for 2018-19 to be marketed in 2019-20 season. The farmer

friendly initiative will give additional return to the farmers of Rs 62,635 crore by way of

increasing MSP of notified crops to at least 50 per cent return over cost of production and

will aid in doubling farmers’ income.

The Minimum Support Prices for all rabi crops of 2018-19 season to be marketed in 2019-20

is as follows3:

2
Union Budget Portal
3
Press Information Bureau Government of India Ministry of Agriculture & Farmers Welfare.

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 MSP MSP
Cost of production Increase in MSP Return over
2017-18 2018-19 cost*
Crop
(Rs/ (Rs/ 2018-19 (Rs/quintal)
Absolute % (in per cent)
quintal) quintal)
Wheat 1735 1840 866 105 6.1 112.5
Barley 1410 1440 860 30 2.1 67.4
Gram 4400 4620 2637 220 5.0 75.2
Masur (Lentil) 4250 4475 2532 225 5.3 76.7
Rapeseed &
4000 4200 2212 200 5.0 89.9
Mustard
Safflower 4100 4945 3294 845 20.6 50.1

Increase in the MSP of Kharif crops

Giving a major boost for the farmers’ income, the Cabinet Committee on Economic Affairs

chaired by Prime Minister Shri Narendra Modi has approved the increase in the Minimum

Support Prices (MSPs) for all kharif crops for 2018-19 Season.

The decision of the CCEA is a historic one as it redeems the promise of the pre-determined

principle of fixing the MSPs at a level of at least 150 percent of the cost of production

announced by the Union Budget for 2018-19. The Commission for Agricultural Costs and

Prices (CACP) has recommended MSPs for all kharif crops broadly in line with the announced

principle.

The Minimum Support Prices (MSPs) for all kharif crops of 2018-19 season have been

increased as follows:

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 (Rs/quintal)

Commodity Variety MSP for MSP approved Increase Return

2017- for 2018-19
*over cost in
18Season Season
Absolute Percentage percent

Paddy Common 1550 1750 200 12.90 50.09

Grade A 1590 1770 180 11.32 51.80

Jowar Hybrid 1700 2430 730 42.94 50.09

Maldandi 1725 2450 725 42.03 51.33

Bajra - 1425 1950 525 36.84 96.97

Ragi - 1900 2897 997 52.47 50.01

Maize - 1425 1700 275 19.30 50.31

Arhar(Tur) - 5450 5675 225 4.13 65.36

Moong - 5575 6975 1400 25.11 50.00

Urad - 5400 5600 200 3.70 62.89

Groundnut - 4450 4890 440 9.89 50.00

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Sunflower - 4100 5388 1288 31.42 50.01
Seed

Soyabean - 3050 3399 349 11.44 50.01

Sesamum - 5300 6249 949 17.91 50.01

Nigerseed - 4050 5877 1827 45.11 50.01

Cotton Medium 4020 5150 1130 28.11 50.01

Staple

Long 4320 5450 1130 26.16 58.75

Staple

Impact on GDP

4
Government's decision to hike MSP for kharif crops is expected to impact GDP by 0.1-0.2

per cent besides adding to inflationary pressures.

According to the global financial services major, higher MSPs carry inflation as well as fiscal

costs.

4
DBS report

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5
"For the fiscal math, impact is likely to be in the tune of 0.1-0.2 per cent of GDP, which

might necessitate higher revenue support or lower capex spending to limit any risk to the

2018-19 deficit targets.”

The move is expected to lead to higher inflation and widen fiscal deficit because of increase

in food subsidy bill to over Rs 2 trillion from Rs 1.70 trillion provided in the Budget for

2018-19, experts said.

Analysts and economists have warned the move could help push up inflation, add to the fiscal

deficit and prompt India’s central to raise interest rates more steeply than expected:

6
“Most of the wholesale prices are higher than the mininum support price (MSP). How that

translates into market prices will be a function of how exactly the implementation of these

MSPs would be. At this point, it is a little difficult to gauge exact impact on inflation. It

seems to be inflationary, but magnitude is uncertain.”

“There has been a lot of farm distress and measures have been taken to alleviate these

problems, this being one of them. This move was something that was necessary, but needs to

be implemented in the right way to ensure they get what they need, to be able to cover up for

the costs.”

7“The Rs200 per quintal hike for paddy is very reasonable, so not likely to rattle markets. If

the number was anything beyond Rs200, there could have been some market implication. The

hike will add about a 25 basis point number to headline inflation, which the government

would be okay with. I think this hike should not have too much of a negative impact.”

5
DBS research report
6
Upasna Bhardwaj, senior economist, Kotak Mahindra Bank
7
Tirthankar Patnaik, India strategist, Mizuho Bank

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“The hike in ragi crop was higher than expected. A larger hike in paddy would have moved

the needle. So, this is a negative, but not an unexpected negative from a fiscal balance

perspective. It is quite clear it was a question between keeping the farmer community happy

in the pre-election year and also not to upset the credit rating agencies. With this hike for

paddy, they have ensured the tightrope balance is fine.”

“We may see these populist measures coming from the state governments instead of federal

government. I’ll not be surprised if we see similar sops from the state government simply

because the current GST collection, crude at over $70 does not leave much room for fiscal

balancing by the central government.”

8
“The median hike from the minimum support prices (MSPs) is 25% compared with 3-4% in

the last three years. The impact from these MSP hikes will be 35 basis points to headline

inflation in the current fiscal year, and another 35 bps in the next. MSP hike is broadly along

expected lines, and as such, may not accentuate concerns for the Reserve Bank of India on

this account.

“However, a larger concern emanates from continued elevated prices of crude oil. We

maintain a risk of one more hike of 25 bps by October. We don’t see any material risk on

fiscal as the impact is at a manageable level of 0.1% of GDP. In every preceding election

year the MSP hikes have been high, like it was 40% in 2009, 27% in 2013 and 25% in 2018.

This will help in boosting farmer income and potentially offset the adverse impact of high oil

prices on growth.”

8
Shubhada Rao, chief economist, Yes Bank, Mumbai

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Impact on various industrial sectors

Automobiles

A hike in MSP does not immediately have an impact on automobile companies. However,

correct implementation of the MSP hike will put more money in the hands of farmers. This

translates into higher spending towards buying two wheelers (specifically motorcycles, half

of which are sold in rural areas) and agricultural equipment. This augurs well for the

following automobiles companies whose sales are largely dependent on rural economy.

Fertilizers and agro-inputs

Higher MSP augurs well for the farmers as it increases their purchasing capacity. This would

result into increase in demand for fertilizers and other agro-inputs like pesticides, herbicides,

insecticides, animal feed and others. The farmers would aim to increase productivity and

production yield to achieve maximum value for their crops.

Non-banking financial companies

The government’s decision to hike MSP for various crops will lead to an improvement in

the economic activity of the farmers. The rural income would increase owing to the higher

MSP, which will boost consumption. The vehicle finance industry would witness a

positive impact of this increased MSP.

Textiles

Increase in the cotton MSPs may impact textile exporters. This is expected to reduce

competitiveness of Indian players in foreign markets. Further, pricing pressure may also

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 affect the margins of the exporters like Trident Ltd, Himatsingka Seide, etc. However,

depreciating rupee will provide some comfort to the exporters.

Further, we may see fabric companies to increase the blending of polyester with cotton.

We expect Ganesha Echosphere and Bombay Dyeing to benefit from increase in the cotton

prices. Further, owing to volatility in cotton prices, key players like Vardhman Textiles

have already started hedging of cotton prices on MCX.

Problems in the current system

The paradox between the government and the farmers

The government is not able to provide the required price and the system that dolls out the

current prices has serious implementation fallacies.

Swaminathan committee in its report provided proper measures and system which are

discussed below to tackle the current problem.

1. A2: Swaminathan committee covered all the types of cash expenditure under the A2 to

generate the crop. In it, things like seeds, manure, chemicals, labour costs, fuel costs

and irrigation costs were added.

2. FL: Under the FL, the Swaminathan Committee added the estimated cost of work to the total

members of the farmer's family.

3. C2: Under C2, the estimated land rent and the cost of interest on the money taken for farming

were added to A2 and FL.

At present, the Commission for Agricultural Costs and Prices (CACP), adds both A2 and FL

to determine the minimum support price.

 The government ads 50 per cent of the value obtained by adding A2 and FL only to fix the

MSP of Kharif crops.

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 But farmers say they should be given MSP after adding 50 per cent to the cost under C2.

 And thus, there is a large difference between the MSP sought by the farmers and the MSP

given by the government.

Still, if recommendations of the Swaminathan Committee are made the basis, farmers will not

be able to get the right price for their crops.

Apart from this, if the advantages of this MSP are discussed, only six per cent of the country's

farmers will get the benefits (because the other 94 per cent are either landless farmers or hold

very small land) and that too will not suffice for the crop value.

And that is because the government only buys as much as 25 per cent of the grain produced

in the country at the rate of MSP, while the rest of the remaining crop (75 per cent) is sold at

the market price.

In order to understand this, here's an example from last year:

 In 2017-18, about 111 million tonnes of rice was produced in the country

 Of these, only 25.3 million tonnes of rice was purchased by the government

 The rest of the rice was sold on the basis of market prices

In such a situation, after the ignorance in deciding the MSP, there are so many flaws in the

implementation process that the farmers are unable to receive the value of their time, labour

and input cost.

Farmers friendly initiatives and positives of increase: the government’s

case

The Budget for 2018-19 had indicated that a paradigm shift in the agricultural policies is needed

to achieve the objective of doubling farmers' income by 2022 through greater emphasis on

generating higher incomes of farmers. The increase in the MSPs of Nigerseed at Rs.1827 per

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quintal, moong by Rs.1400 per quintal, sunflower seed by Rs.1288 per quintal and cotton by

Rs. l130 per quintal is unprecedented.

Amongst cereals and nutri cereals, in terms of absolute increase, MSP of paddy (common) has

been raised by Rs 200 per quintal, jowar (hybrid) by Rs 730 per quintal and ragi by Rs 997 per

quintal. The highest percentage increase in MSP over the previous year is for ragi (52.47 %)

followed by jowar hybrid (42.94%). For pulses, apart from Moong, MSP of arhar (tur) has been

raised by Rs 225 per quintal yielding a return over cost by 65.36 per cent and urad by Rs 200

per quintal with a return over cost by 62.89 per cent in order to maintain inter-crop-price parity.

Similarly, the MSP of Bajra has been raised by Rs.525 per quintal yielding a return of 96.97

per cent over cost.

Promoting cultivation of pulses can help India overcome nutrition insecurity, improve soil

fertility by nitrogen fixation and provide income support to farmers. Thus, increased MSPs for

pulses will give a price signal to farmers to increase acreage. Further enhanced MSPs would

boost production of oilseeds and encourage investment in its productivity and help reduce

India's import bill. Increase in MSPs of nutri-cereals will improve nutritional security and allow

farmers to get higher prices.

Food Corporation of India (FCI) and other designated State Agencies would continue to provide

price support to the farmers in the case of cereals including nutri-cereals. National Agricultural

Cooperative Marketing Federation of India Limited (NAFED), FCI, Small Farmers Agri -

Business Consortium (SFAC) and other designated Central Agencies would continue to

undertake procurement of pulses and oilseeds. Cotton Corporation of India (CCI) will be the

central nodal agency for undertaking price support operations for Cotton.

Other intiatives

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Besides increase in Minimum Support Prices (MSP) of kharif crops, Government has also taken

several farmer friendly initiatives. These are as follows:

• The premium rates to be paid by farmers are very low - 2 % of sum insured for all kharif

crops, 1.5% for all rabi crops and 5 % for commercial and horticulture crops under smart

technology through phones & remote sensing for quick estimation and early settlement

of claims. The Government has also launched a Mobile App "Crop Insurance" which will

help farmers to find out complete details about insurance cover available in their area and

to calculate the insurance premium for notified crops.

• The Government has also launched a scheme to develop a pan India electronic trading

platform under 'National Agriculture Market' (NAM) aiming to integrate 585 regulated

markets with the common e-market platform in order to facilitate better price discovery

and ensure remunerative prices to farmers. Each State is being encouraged to undertake

three major reforms - allow electronic trading, have a single license valid throughout the

State and a single entry point market fee. It will also enable farmers to discover better

prices for their produce. As on 23rd March, 2018, 585 markets in 16 States and 2 Union

Territories have already been brought on the e-NAM platform.

• Government has also formulated a new model Agricultural Produce and Livestock

Marketing (Promotion & Facilitation) Act, 2017 to provide farmers market options

beyond the existing APMC regulated market yards.

• Soil Health Cards are being issued to farmers across the country. These will be renewed

every two years. The card provides information on fertility status of soil and a soil test

based advisory on use of fertilizers. As on 25th June, 2018, 15.14 crore Soil Health Cards

have been distributed.

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 • Under Paramparagat Krishi Vikas Yojana (PKVY), the Government is promoting

organic farming and development of potential market for organic products.

• The Pradhan Mantri Krishi Sinchai Yojana is being implemented with the vision of

extending the coverage of irrigation 'Har Khet ko Pani' and improving water use

efficiency 'Per Drop More Crop ' in a focused manner with end to end solution on source

creation, distribution, management, field application and extension activities.

• Government is focusing on improving production and productivity of crops such as rice,

wheat, coarse grains and pulses under the National Food Security Mission.

• A dedicated online interface e-Krishi Samvad provides direct and effective solutions to

problems faced by farmers.

• Government is encouraging formation of Farmer Producer Organisations. The Budget

for 2018-19 has extended a favourable taxation treatment to Farmer Producers

Organisations (FPQs) for helping farmers aggregate their needs of inputs, farm services,

processing and sale operations.

• Government has set up a buffer stock of pulses and domestic procurement of pulses is

also being done under Price Stabilization Fund (PSF) mainly with a view to protect

consumers. The Budget for 2018-19 indicated that increasing MSP. is not adequate and

it is more important that farmers should get full benefit of the announced MSP. For this,

it is essential that if price of the agriculture produce market is less than MSP, then

Government should purchase either at MSP or work in a manner to provide MSP for the

farmers through some other mechanism. NITI Aayog, in consultation with Central and

State Governments, will put in place a fool-proof mechanism so that farmers will get

adequate price for their produce.

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 • A handbook for women farmers 'Farm Women Friendly Hand Book' containing

special provisions and package of assistance which women farmers can claim under

various on going Missions/ Submissions/ Schemes of Department of Agriculture,

Cooperation & Farmers Welfare has been brought out.

With the above measures taken, the Government has set a target to double the farmers'

Income by 2022.

Suggestions

The current system of fixing the MSP is problematic to the government as well as the farmers

so here are 3 options of systems which can be used for the fixation of MSP.

The schemes are market assurance scheme, a price-deficiency procurement scheme and a

private procurement and stockist scheme.

The market assurance scheme proposes procurement by States and compensation of losses up

to certain extent of MSP after the procurement and price realisation out of sale of the

procured produce.

price deficiency procurement scheme, if the sale price is below a modal price then the

farmers may be compensated to the difference between MSP and actual price subject, which

would not exceed 25 per cent of the MSP.

Under the third option, procurement would be done by private entrepreneurs at MSP and the

government would provide some policy and tax incentives to these entrepreneurs.

Conclusion

In my view, the increase in the Minimum Support Price (MSP) has more advantages than dis-

advantages and if managed properly it can be used by the government as a powerful in

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stabilising the economy. This will mainly help reduce the burden on financial institutions as

banks are mainly run of funds procured by the public at large. The produce purchased by the

government can also be sold at fair price shops to people below poverty line. This will help

reduce though not completely but partially the burden on the government in respect of

recovering the prices promised to the farmers.

REFERENCES

 Articles from TOI & The Hindu.

 Government press release for the increase.

 DBS research report.

 Shodhganga

 Vikaspedia

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